I.T.AS. NOS. 378 TO 380/PB OF 1995-96, DECIDED ON 20TH SEPTEMBER, 1997. VS I.T.AS. NOS. 378 TO 380/PB OF 1995-96, DECIDED ON 20TH SEPTEMBER, 1997., 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1379 (1997)

(a) Income Tax Ordinance (XXXI of 1979)---

----S.2(32)---"Person"---Definition---Artificial juridical person includes a company, a local authority and a cooperative housing society.

I.T.As. Nos. 1144, 977, 2570, 833/LB of 1981-82 and 1982-83; Law of Income Tax by Acharya and Shuklendra, 1988 Edn., p.2648 and PLD 1976 Kar. 1022 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.80-B---Company was not covered by the provisions contained in S.80-B of the Income Tax Ordinance, 1979.

I.T.As. Nos. 1144, 977, 2570, 833/LB of 1981-82 and 1982-83; Law of Income Tax by Acharya and Shuklendra 1988 Edn., p.2648 and PLD 1976 Kar. 1022 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----5.156---Rectification of mistake---Mistake apparent on face of record-- Where a provision is capable of two interpretations, the adoption of one of such interpretations could not be considered a mistake apparent from the record for which action could be taken subsequently.

Law of Income Tax by Acharya and Shuklendra, 1988 Edn., p.2648 ref.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 156---Rectification of mistake---Mistake---Concept---Mistake contemplated under 5.156, Income Tax Ordinance, 1979 must be one that could/would immediately meet the eye and should not be one that could be established by a long-drawn process of argumentation.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-B, 2(32), 156 & First Sched., Part I, para. CC(C)---Interest income of company ---Chargeability to tax---Procedure.

I.T.As. Nos. 1144, 977, 2570, 833/LB of 1981-82, 1982-83; Law of Income Tax by Acharya and Shuklendra 1988 Edn., p.2648 and PLD 1976 Kar. 1022 ref.

Hidayatur Rehman, D.R. for Appellant.

Muhammad Mirza for Respondent.

Date of hearing: 26th August, 1997.

ORDER

ABDUR REHMAN AFRIDI (ACCOUNTANT MEMBER).-- These three Departmental Appeals for the assessment years 1992-93, 1993-94 and 1994-95 lie against the combined order of the learned CIT(A) recorded on 20-1-1996.

2. The assessee-respondent is a private limited company, deriving income from manufacture and sale of plastic goods. Assessments for the assessment years 1992-93 and 1993-94 were finalized under section 62 of the Income Tax Ordinance at net loss of Rs.1,22,425 for the assessment year 1992-93 and net income at Rs.56,22,079 for the assessment year 1993-94. Since the income of the assessee-company was exempt from tax, tax was charged under section 80-B of the Ordinance. It appears that there was also interest income on which tax Q 10% was deducted under section 80-B of the Income Tax Ordinance and the same was accepted as the final discharge of the assessee's liability under the Ordinance. It was later on realized that the assessee being a company, the provisions of section 80-B of the Ordinance were not applicable in its case. The assessments were, therefore, sought to be rectified under section 156 of the Ordinance and a show-cause notice was issued as to why the interest income of Rs.4,11,054 and Rs.22,12,559 may not be charged to tax at the ordinary rates as laid down in the First Schedule to the Income Tax Ordinance. The notice was replied to by the assessee and it was contended that since it was a company which is covered by term "artificial juridical person", it was covered by the provisions contained in section 80-B of the Ordinance and that tax had been correctly charged 10% as provided in that section. The contention of the assessee was rejected as being unacceptable for the reason that whereas all the persons as mentioned in section 2(32) were repeated in section 80-B, registered firms and companies had been specifically omitted there from. It was accordingly inferred by the assessing officer that section 80-B was applicable to persons other than registered firms and companies. Consequently, interest income amounting to Rs.4,11,054 for the assessment year 1992-93 as reduced by expenses amounting to Rs.4,839 and interest income amounting to Rs.22,12,459 for the assessment year 1993-94 as reduced by expenses amounting to Rs.18,566 was charged to tax at ordinary rates as provided in the First Schedule to the Income Tax Ordinance. For the assessment year 1994-95, the assessment was finalised under section 62 and it was finally held that on interest income amounting to Rs.77,40,905 which was included in the income returned and was claimed as exempt, tax shall be charged at the ordinary rates relating to interest income of the company as per the provisions of the Fist Schedule to the Income Tax Ordinance.

3. Appeals were preferred against the orders passed under section 156 which were disposed of by the learned CIT(A) vide order mentioned above. The learned CIT(A) referred to observation contained in order of the Lahore Bench vide I.T.As. Nos. 1144, 977, 2570, 833/LB (assessment years 1980-81, 1981-82 and 1982-83 which read as follows:---

"So, every company or cooperative society is a juridical person but every juridical person is not necessarily a company or a cooperative society."

He further reproduced the assessee's contention that the assessing officer had initiated proceedings under section 156 of the Income Tax Ordinance after receipt of C.B.R. Circular directing that section 80-B was not applicable to companies and that the same was, therefore, a mere change of opinion. The learned CIT(A) further reproduced the following extracts from page 2648 of the Law of Income Tax by Acharya and Shuklendra, Edition 1988.

"If a statutory provision .is capable of two interpretations, taking one such interpretation cannot give rise to an error apparent on the record even if one is of the view that the other interpretation was more correct in the context. The matter is simple. If the determination of the mistake depends on the interpretation of the provisions of the Act, it cannot be said that there is an error apparent on the face of the record. A decision on a debatable point of law cannot be held to be mistake apparent from the record."

The learned CIT(A) was of the opinion that since the provisions contained in section 80-B of the Income Tax Ordinance were capable of more than one interpretation, the order passed by the assessing officer could not be termed as rectification of a mistake but was actually based on a different view taken by the assessing officer of these provisions which in fact amounted to change of opinion. The orders for the years 1992-93 and 1993-94 passed under section 156 of the Income Tax Ordinance were, therefore, annulled. For the assessment year 1994-95 it was held that tax on interest income was chargeable in accordance with the provisions of section 80-B of the Ordinance.

4. The abovementioned Departmental Appeals have been filed with the contention that the orders passed under section 156 for the assessment years 1992-93 and 1993-94 had been properly passed to correct mistakes which were apparent from the record and that the learned CIT(A) was not justified to cancel the same. For the assessment year 1994-95, it is contended that interest income earned by the assessee had been rightly excluded from the ambit of section 80-B and had been properly charged to tax at the rates laid down in Part 1 of the First Schedule.

5. The learned representatives of the parties have been heard.

. 6. The learned A.R. referred to the original orders passed under section 62 for the assessment years 1992-93 and 1993-94 wherein the assessing officer made the following observations regarding interest on bank deposits:

Assessment Year. 1992-93:

"As proof of above income, assessee has submitted photo copies of bank advices ten in number. Income is verifiable, however, in the light of provisions of section 80-B and rate specified in First Schedule sum of Rs.4,11,054 is treated as a separate block of income and tax is to be charged at the rate of 10 % which would work out at Rs.4,11,105. This figure appears in assessee's account under the heading 'provision for taxation'."

Assessment year 1993-94.

"Interest income from loan etc.:

Income viz Rs.12,76,755 and Rs.9,35,704 have been declared on accounts of profit from Banks and as interest on loan from associated undertakings respective relevant documentary evidence have been furnished in this respect which are available on record. Income declared under this head and is required to be assessed under section 80-B. Tax liability of assessee would, therefore, be determined under section 80-B."

It was for the assessment year 1994-95 only when tax on the interest income for this assessment year has been directly charged according to rates laid down in the First Schedule to the Income Tax Ordinance. He argued therefore, that for the assessment years 1992-93 and 1993-94, the action taken by the assessing officer amounted to a change of opinion since the taxing of the interest income for these two years 10 % as per original assessments was the result of full deliberation of the facts and legal position in the case. The alleged mistake was not one which could be immediately deducted on examination of the record. The Assessing Officer had arrived at the conclusion that tax had not been properly charged after exhaustive deliberation of the contents of section 80-B of the Income Tax Ordinance read with clause (32) of section 2 thereof. The action of the assessing officer to arrive at this conclusion was the result of along-drawn-out process of debate and argumentation. The alleged mistake committed by the assessing officer in the original assessments made under section 62 of the Income Tax Ordinance was not, therefore, a mistake apparent from the record. If a provision of the law is capable of different interpretations on the basis of arguments, the original conclusions drawn by the assessing officer on the basis of some of these arguments cannot be considered to be a mistake apparent from record as envisaged in section 156 of the Income Tax Ordinance. It was further argued that the view that the action taken by the assessing officer under section 156 was a change of opinion, is indicated by the fact that the I.T.O. initiated the proceedings under this section only after C.B.R. Circular No.80(1) DTB 91-B, dated 1-10-1994 was received as up till that time the assessing officer was sure that the acceptance of the contention that the provisions of section 80-B applied to the case of a company, was correct.

7. As regards the assessment made for the charge year 1994-95 the learned A.R. contended that section 80-B was fully applicable to the case of companies since the company was an artificial Juridical person referred to in that section. He also referred to the provisions contained in section 2(32), para. CC(C) of Part 1 of the First Schedule and the order passed in I.T.A. No.833(LB) of 1982-83 dated 24-8-1989 and PLD 1976 (Karachi High Court) page 1022.

8. In order to better appreciate the contention of the learned A. R. we would like to reproduce the provisions of section 80-B, section 50(2-A), section 2(32) and para. CC(C) of Part 1 of the First Schedule so far as relevant:

Clause (32) of section 2;

"(32)' person' includes an individual, firm, an association of persons, Hindu undivided family, a company, local authority and every other artificial juridical person."

Section 50 (2-A). .

"(2-A) any person responsible for paying any sum by way of interest or profit on an account or deposit maintained with any banking company, or any financial institution shall deduct, at the time of credit of such interest or profit to the account of the recipient or at the time of payment thereof, whichever is earlier, tax at the rates specified in the First Schedule;

Provided .

Section 80-B,

"80-R. Tax on income of certain persons from dividends and bank profits etc.---(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to an individual, unregistered firm, association of persons, Hindu undivided family or artificial juridical person referred to in clause (32) of section 2, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rates specified in the First Schedule.

(2)The amount referred to in subsection (1) shall be the following,namely---

(a)divided on which tax is deductible under subsection (2-A) of section 50;

(b)interest or profit on which tax is deductible under subsection (2-A) of section 50;

(bb) the amount received on encashment of bearer certificates on which tax isdeductible under subsection (5-B) of section 50;

(c)interest or profit on which tax is deductible under subsection (7-D) of section 50; and

(d)interest or profit on which tax is deductible or collectable under subsection (7-C) of section 50.

3.Nothing contained in this Ordinance shall be so construed as to authorize any allowance or deduction against the income as determined under subsection (1) or any refund of tax deducted or collected under section 50 or set off of any loss under any provisions of this Ordinance.

4.Where the assessee has no income other than the income referred to in subsection (1) in respect of which tax has been deducted or collected, the tax deducted or collected under section 50 shall be deemed to be the final discharge of the lax liability of the assessee under this Ordinance and he shall not be required to file the return of total income under section 55.

5.In a case to which subsection (4) applies, an order under section 59-A shall be deemed to have been made in respect of income referred to in subsection (1)."

Para CC(c) of Part 1 of the First Schedule:

"CC In the case of every individual, unregistered firm, association of persons, Hindu undivided family and artificial juridical person referred to in clause (32) of section 2, not being a case to which paragraph B of this part applies---

(a) ..........

(b)..........

(c)on the income representing profit or interest on account of deposit maintained with any banking company or any company referred to in sub-clauses (a) and (b) of clause (16) of section 2 or any finance society. "

9. A plain reading of the contents of clause (32) of section 2 would indicate that the following entities have included in the definition of "person" either specifically or generally---

(i)an individual.

(ii)a firm (either registered or unregistered).

(iii)an association of persons.

(iv)a Hindu undivided family.

(v)a company.

(vi)a local authority.

(vii) every other artificial juridical person.

10. There is no dispute regarding the contention of the learned A.R. that an artificial juridical person would include both a company, a local authority and a Cooperative Housing Society as claimed by him. The matter for consideration in this case, however, is that section 80-B and para. CC(c) of the First Schedule make reference to an individual, unregistered firm, association of persons, Hindu undivided family and artificial Juridical person referred to in clause (32) of section 2 of the Income Tax Ordinance (uder lining is ours for emphasis). There was clearly a purpose behind picking up entities such as individual, unregistered firm, association of persons and Hindu undivided family from clause (32) of section 2 and omitting entities like "Local authority" and "company". Even in the case of a "firm", a choice has been made between an "unregistered firm" and a "registered firm" by including the former and excluding the latter. As regards the mention of "artificial juridical person", reference has been made to clause (32) of section 2. This action is very significant. If the intention of the law makers was to include a local authority and a company for the purposes of section 80-B and paragraph CC, clause (c), it could have done any two of the following things:

(a)making a mention of a local authority and a company and a company and every other juridical person in section 80-B and paragraph CC of the First Schedule referred to above;

(b)mentioned the words "artificial all juridical person" generally such as by saying that the provision of section 80-B shall apply to an individual, an unregistered firm, an association of persons, a Hindu undivided family and "any artificial juridical person".

This would have taken care of the contention whether or not a local authority or a company were covered by the provisions of section 80-B and paragraph CC(c) of the Fist Schedule. This has, however, not been done. By mentioning the term "artificial juridical person," reference has in all these provisions been made to clause (32) of section 2 of the Ordinance. In this clause, however, the term used is "every other artificial juridical person" which clearly excludes the case of a local authority and a company. The Assessing Officer was, therefore, quite right to say that a company was not covered by the provisions contained in section 80-B of the Income Tax Ordinance. We are consequently of the clear view that no error or illegality had been committed by the assessing officer for the assessment year 1994-95 while subjecting the interest income to normal tax as prescribed by the First Schedule to the Income Tax Ordinance. The Departmental Appeal for the assessment year 1994-95 is, therefore, accepted.

11. It is, however, debatable whether assessments completed for the charge years 1992-93 and 1993-94 under section 62 of the Income Tax Ordinance could be rectified under section 156 of the Ordinance. It would appear from the extracts reproduced from the assessment order passed by the assessing officer that for these two years he had given a clear finding to the effect that the case of the assessee was covered under the provisions contained in section 80-B and paragraph CC(c) of the First Schedule and that tax was chargeable at 10% of the income accordingly. It was only after the receipt of directions from the C.B.R. that the assessing officer seems to have changed his opinion and to have held that the charging of tax in respect of interest on bank deposits under section 80-B was mistake and required rectification. We have arrived at the conclusion after long deliberation, as would appear from the above that the term "company" was not contemplated as being one of the entities referred to in section 80-B of the Ordinance. We must agree with the observation of M/s. Acharya and Shuklendra already reproduced above that where a provision is capable of two interpretations, the adoption of one of these could not be considered a mistake apparent from the record for which action could be taken subsequently. A deliberate finding having been given by the assessing officer regarding the interpretation of provisions of section 80-B (which interpretation could not be unexpected in the circumstances of the case), we are unable to agree with the contention of the Department that the earlier interpretation of the Assessing Officer was a mistake apparent from the record and was rightly rectified under section 156 of the Income Tax Ordinance. A mistake contemplated under section 156 of the Ordinance must be one that could would immediately meet the eve and should not be one that could be established by a long-drawn process of argumentation. Subsequent action taken by the assessing officer in the present case is not only a change of opinion, it also does not establish that a clear mistake of law had been committed and that the assessing officer actually wanted to arrive at a conclusion entirely different from which he ultimately did at the time of making the original assessment. The subsequent action of the Assessing Officer being based on a fresh interpretation of the provisions of section 80-B, the same could not amount to the correction of a mistake apparent from the record. For these two years, therefore, we must confirm the order of the learned CIT(A).

12. In the result whereas the appeals filed for the assessment years 1992-93 and 1993-94 fail and are rejected, that for the assessment year 1994-95 succeeds and is decided in favour of the Department.

M.B.A./510/Trib. Order accordingly.